What Has and Hasn’t Been Included in the DHS Calculations?

As you have probably heard by now, the Department of Health Services (DHS) delivered some good news Friday relating to the budget for Medicaid (including BadgerCare and Family Care).  In a September 28 letter to the Joint Finance Committee co-chairs, Secretary Smith said the state’s Medicaid budget finished fiscal year 2011-12 with a positive balance of $41.6 million (GPR/SEG), and the projected GPR deficit for the full biennium fell by more than 90% – from almost $149 million three months ago to a little less than $14 million in late September.

This blog post examines the factors that have largely eliminated the deficit, and also summarizes other changes in revenue and spending reductions that have yet to be included in the calculations of the projected Medicaid budget.   And it looks at some of the implications of the much-improved budget picture. The figures released Friday are very good news, but not a surprising development.  Many of the savings are from things DHS has been planning for a year or more, but which the department is only now actually factoring into its estimates of the Medicaid balance.  I noted in a WI Budget Project Blog post in late June that DHS seemed to be on track to eliminate the deficit.  In fact, we have argued in the past and continue to believe that not all of the department’s cost-saving and cost-shifting initiatives were needed, and some of them should be reconsidered.

The factors that account for the sharp reduction in the projected MA deficit include the following:

• $49 million of anticipated savings through a number of efficiency measures that DHS has implemented or is close to implementing – such as expanding its auditing efforts, using LogistiCare to coordinate rides in SE Wisconsin, and beginning a pay for performance initiative for hospitals and HMOs.
• Changes to BadgerCare that began in July and are now expected to reduce enrollment by about 21,600 parents (or caretakers) and save $34.4 million GPR (compared to earlier projections of a reduction of about 17,000 people in BadgerCare and savings of $25.4 million GPR).
• Retroactive claims of enhanced federal matching funds for family planning services generated $27 million for the state at the end of FY 2011-12.
• Lower than expected enrollment in Family Care is estimated to save $14.9 million GPR, and long-term care cost-savings initiatives are expected to save at least $3.2 million.
• A decline in overall enrollment is expected to reduce spending by $9 million GPR.

A longer list of cost-saving measures the department has initiated can be found on page 3 of the DHS budget request for 2013-15.

The following factors have not been included in the department’s latest projections:

• The $20 million or more that the state can expect to receive in December from a federal performance bonus award for BadgerCare’s success in improving coverage of kids.
• At least $14 million from several federal court settlements with drug companies.
• About $900,000 of new Medicaid funding from a plan currently before the Joint Finance Committee to transfer about $7.9 million of “income augmentation” revenue to the Medical Assistance Trust Fund. (The other $7 million had already been anticipated.)

Thus far, the department has only assumed a $3.2 million savings from the long-term care efficiencies that it previously said would fully offset the increased spending from lifting the Family Care enrollment freeze.  I suspect that there will be additional Family Care savings reflected in future estimates of the Medicaid balance.

In many respects, it’s very encouraging news that DHS is well on its way to meeting or exceeding its cost-savings projections.  However, we think the new budget numbers reinforce our long-held belief that the department doesn’t have to keep making the sorts of BadgerCare cuts that will shift costs onto other health care consumers and are likely to reduce access to preventive care.

One of the cost-cutting measures that is not currently factored into the budget calculations is the DHS proposal to implement an Alternative Benchmark Plan (ABP) for BadgerCare, with narrower benefits covered and much higher co-pays. That plan has not received federal approval, which I suspect is because DHS hasn’t demonstrated how it would be able to ensure that co-pays don’t exceed the cap set by federal law.  The improved budget picture and other potential savings mean the department could drop the ABP proposal.

In addition, the much reduced estimate of the deficit, coupled with the recent court settlements that haven’t been factored into the savings, make this an opportune time to lift the moratorium on enrollment in the BadgerCare Core Plan for coverage of adults without dependent children. Funding for that purpose was included in the 2011-13 budget, and the state is running out of excuses for failing to take people off the waiting list that began in October 2009.

Jon Peacock